IMF Headquarters 1 in Washington, DC.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas needs a further $240m “adjustment” to hit its Fiscal Responsibility targets, the IMF warned yesterday, as it called for more “trimming” of the civil service wage bill.
The International Monetary Fund (IMF), in its newly-released Article IV report, suggested that further sacrifice was required for the Government to hit its fiscal consolidation goals even though its 2017-2018 targets were “within reach”.
The Fund “urged” the Minnis administration to further cut recurrent spending, which goes on fixed costs such as civil service salaries and rents, and avoid “an undue squeeze” on capital spending on essential infrastructure - the very method by which it has narrowed the 2017-2018 deficit.
The Government’s Fiscal Responsibility Bill, unveiled yesterday, seeks to cut the fiscal deficit to 0.5 per cent of gross domestic product (GDP) within three years. But the IMF warned it might miss this target without its recommended Budgetary ‘adjustment’.
“The fiscal target for fiscal year 2018 is within reach, despite the unbudgeted purchase of [Bahamas] Resolve promissory notes, although at the expense of lower-than-budgeted capital spending,” the IMF said.
“Staff recommended an additional adjustment of 2.25 per cent of GDP to bring the deficit to 0.5 per cent of GDP by fiscal year 2021- the medium-term target under the proposed fiscal rule - to put the public debt-to-GDP ratio on a firmly downward trajectory.
“Staff urged the authorities to identify measures to undertake this adjustment, with a strong focus on reducing current spending and avoid an undue compression of capital spending.”
The Fiscal Responsibility Bill’s key targets require the Government to slash the fiscal deficit to 0.5 per cent from 2020-2021 onwards, slashing it from a sum equivalent to 5.8 per cent of GDP in the 2016-2017 Budget year.
The Bill’s ‘first schedule’ sets out a ‘glide path’ or ‘road map’ for achieving this, acknowledging - as the IMF stated - that “significant fiscal adjustments” are needed over the next two Budget years to hit this objective.
To enable the public sector and wider Bahamian economy “to achieve the fiscal objective in an orderly manner”, and avoid unnecessary shocks, the Bill calls for 2018-2019 and 2019-2020 deficits that “shall not exceed” 1.8 per cent and 1 per cent of GDP, respectively.
K P Turnquest, Deputy Prime Minister, last night indicated to Tribune Business that achieving these “fiscal balance” targets would not be painless. “We’re going to do our best to meet the targets,” he confirmed. “It’s going to require some reconciliation and some adjustment, but that [a 0.5 per cent deficit[] is our goal.”
The Bill also sets out a “long-term” target of reducing the Government’s direct debt-to-GDP ratio from the current 58 per cent to “no more than 50 per cent”. The year by which this target is to be achieved has to be set out in the Government’s ‘fiscal strategy report’, which must be submitted to Parliament no later than the third week of November each year.
“It’s difficult to say at this particular point,” Mr Turnquest replied, when asked to specify when the 50 per cent debt-to-GDP target will be achieved. “But we are planning for a balanced Budget in 2019-2020; 2020-2021 at the latest, at which point we expect to start the claw back depending on GDP growth.
“This is about putting in the framework that will help us start this process” of fiscal consolidation. The Bill also permits a “compliance margin” equal to 0.5 per cent of GDP in assessing whether the Government has hit its targets, and ‘caps’ recurrent spending growth at the “estimated” long-run nominal GDP growth rate once “fiscal balance” is achieved.
The Article IV report, unveiled yesterday, shows the Government has followed the IMF’s recommendations ‘to the letter’, given that the targets set out in the Bill mirror those suggested by the Fund.
“The fiscal rule should include a permanent ceiling on the fiscal deficit no larger than 1 per cent of GDP, with annual deficit targets set at 0.5 per cent of GDP to allow space for automatic stabilizers to operate,” the IMF said.
“These targets, binding from fiscal year 2021 on, would allow space to accumulate savings in the proposed natural disasters fund. To further avoid procyclicality, the rule should also cap the growth rate of current expenditure at the estimated long-run growth of nominal GDP; and include exceptional circumstances clauses to be triggered only when confronted with significant negative shocks.”
Such shocks would include major hurricanes, and Tribune Business reported earlier this year on the IMF’s call for the Bahamas to build-up a ‘disaster relief’ fund equivalent to 2-4 per cent of GDP to mitigate the financial effects of such disasters.
The IMF’s Article IV report called for central government debt to become the Bahamas’ fiscal responsibility ‘anchor’, which the Bill also incorporates. “A natural anchor is the central government debt ratio, which helps guide expectations and (if prudently calibrated) ensures the sustainability of public finances,” the IMF said.
“Debt anchors need to be complemented with operational targets, such as deficit and spending ceilings, that guide fiscal policy towards the medium-term fiscal anchor.”
The long-term 50 per cent debt-to-GDP target was also recommended by the IMF, together with a ‘deficit ceiling’ equal to 1 per cent of GDP and a recurrent spending ‘cap’ at 3 per cent. The Fund said the 0.5 per cent annual deficit target, which the Government has also agreed to, will create space to set aside funding for the ‘disaster relief fund’.
The IMF also yesterday reiterated its call, first made last year, for the Government to gradually reduce the public sector’s size - but only once the private sector was able to pick up the job creation ‘slack’, and absorb persons released from the civil service.
It recommended “trimming the wage bill through a gradual rationalisation of public sector jobs - as private sector job creation strengthens - and wage restraint”. The Minnis administration’s termination of temporary workers, many of whom were hired just before last year’s general election, once their contracts have ended has already caused political controversy.
The Government, though, is arguing that it has little choice but to bring the civil service’s $733 million wage bill under control, and relieve the burden on hard-pressed Bahamian taxpayers from a public sector that has become too big.
The IMF’s Article IV report yesterday said of the Government: “They are taking steps to gradually trim the wage bill, and have asked state-owned enterprises (SOEs) to prepare plans to become self-sufficient. They also acknowledged the need to reform the pension system.
“The authorities highlighted that the reduction in capital spending is temporary, and in response to their ongoing efforts to identify priorities. In addition, they expect to rely more on Public Private Partnership (PPP) in the future to fund infrastructure investment.”
The Fund’s report also revealed that the Government is mulling whether to treat some food products as ‘zero-rated’ for Value-Added Tax (VAT) purposes, in the belief this will be more effective than increased social security spending to alleviate the tax burden on lower income Bahamians.
This would fulfill a 2017 election campaign promise, but the IMF warned: “The administration has announced fiscal austerity measures and intends to table fiscal responsibility legislation. However, Dr Minnis has also promised introducing a zero-rate VAT for some food items, which would have to be weighed against fiscal sustainability objectives.
“They [the Government] are carefully reviewing the potential impact of a zero-VAT rate on some food items, and noted that this option may be easier to administer than conditional cash transfer programmes, which have been difficult to manage in the past.”
Comments
ohdrap4 5 years, 11 months ago
cut the ten thousand allocated for the spouse to buy tea.
As reported by the nassau guardian on March 21, 2018:
Sickened 5 years, 11 months ago
Don't forget, that amount doubled a couple of weeks later.
proudloudandfnm 5 years, 11 months ago
Do not cut VAT on bread basket items! That will only increase prices. A 7.5 discount on a couple of items is not worth it, it will never benefit a soul.
Eliminate duty! Then raise VAT.
Damn man! Use your friggin heads. VAT is collected primarily by private business, the more work you put on them the higher prices will go!
DDK 5 years, 11 months ago
No more VAT! VAT is on almost everything as it is. Even things the man in the street does not see. Just leave it on bread basket items and cut more duties. It will even out and should be explained to The People.
DWW 5 years, 11 months ago
these two ^^^ white and priviledge eh? maybe i am too?
Well_mudda_take_sic 5 years, 11 months ago
This comment was removed by the site staff for violation of the usage agreement.
DDK 5 years, 11 months ago
Right you are on all points. Hope one of these days we will be able to tell IMF and Co. how far to jump!
Dawes 5 years, 11 months ago
Only way we can do that is if we pay off our debt, which is more then the IMF is asking. As we currently owe billions we are the ones who are being told how far to jump.
DDK 5 years, 11 months ago
Understood Dawes!!!
Sickened 5 years, 11 months ago
Oh yeah! The IMF loves when poor countries borrow more. Economic Hitmen!!!
TheMadHatter 5 years, 11 months ago
Proudloud - exactly correct. Duties should be cut dramatically and even cut gas & diesel tax a little bit - but raise VAT to 10%. Use a little bit of the extra VAT to subsidize BPL a little to bring down bills for those whose bills range between 150 and 300 per month. In other words, a middle class tax cut.
Dont remove VAT from breadbasket. The more you subsidize the poor, the more poor you have to subsidize. Every time a poor woman is able to save $500 under her mattress, she stops taking her pills.
Sickened 5 years, 11 months ago
Poor people love to breed. Seems to give them some sort of meaning. Just look at Africa AND DO THE OPPOSITE!
sheeprunner12 5 years, 11 months ago
THE I.M.F. PILL MUST BE SWALLOWED ......... THANKS TO 50 YEARS OF POOR GOVERNANCE AND FISCAL IRRESPONSIBILITY.
Well_mudda_take_sic 5 years, 11 months ago
Our real target should be getting our total debt-to-GDP ratio from the current 90%-100% down to no more than 70%. Our total, as opposed to direct, debt-to-GDP ratio includes things like unfunded pension liabilities and government guaranteed indebtedness of all government controlled entities.
screwedbahamian 5 years, 11 months ago
Hopefully it will NOT be as I experienced in 2011 at retirement age when the Government of PAPA INGRAHAM took away my pension benefits, despite being enrolled since 1974 and contributing to the NIB pension fund, due to the major corruption and mismanagement of the NIB funds. NIB pension funds should not be used to bail out corrupt and mismanaged government departments and agencies.. Bahamians should consider contributions to the NIB fund as additional taxes and establish and manage their own retirement/pension funds.
Sickened 5 years, 11 months ago
Correct!!! NIB is anything BUT a retirement plan!
DDK 5 years, 11 months ago
Does anyone actually know the base rate of and criteria for pensions to civil servants and MP's, PM's, Senators, etc? What about all of these Board members? Is the Governor General still receiving her deceased husband's pension in addition to the stipend she receives as Governor General?
TalRussell 5 years, 11 months ago
Careful, Ma Comrade DDK, not only has the GG out performed that of the entire Imperial red shirts cabinet- Her Excellency might just has be only one left standing on hill if the need arises royally step-in and looks down save the people from their own government.
Sickened 5 years, 11 months ago
Oh Jesus! If she/it is or may be our last and only hope then I ga start eating myself now.
DDK 5 years, 11 months ago
Me thinks you have a slight obsession with "The Lady"' on the hill LOL!
sheeprunner12 5 years, 11 months ago
BOL ......... The Pindlings will suck off the Treasury to the last red cent
TalRussell 5 years, 11 months ago
Ma Comrade, why is it Four red shirts governing administrations have been unable trace down the so-called millions the Pindlings have for years been accused hiding? Even the Swiss would've been exposed over this into their 17th year red shirts governing period.... strange only money thing found was unpaid light bill for couple hundred dollars... but it's not just the Pindlings.... even the recently deceased Ronnie Butler got no respect shown dead, from this Imperial red shirts cabinet.
Sickened 5 years, 11 months ago
We just waiting for that recently sick guy to find Jesus and tell us. All fingers point to him.
Sickened 5 years, 11 months ago
Our government's response to the IMF... "Yes boss!"
TalRussell 5 years, 11 months ago
Ma Comrades, I recall the same red shirts kept demanding PLP government tell the people what they did with the VAT money - is now refusing answer the exact same question which is, since 10th May 2017, where in hell did that all the hundred millions VAT money go under the red shirts? Also, detail where the monies collect in taxes and fees from numbers houses have been spent?
DDK 5 years, 11 months ago
With you on that one! They DID say something about transparency, did they not?
TalRussell 5 years, 11 months ago
Yeah, Ma Comrade, i think they promised providing the people public with the "unvarnished truth".... instead, Imperial red cabinet ministers are today this Tuesday May morning going head to head with other defining what it means breaks the law? {Couldn't make this up }. Not way advance elevation high bench Chief Justice under such confusion simple common sense colonial law... stop misleading people public and parliament over short givings OBAN.
realitycheck242 5 years, 11 months ago
When we strike Oil in the Back of Adros our dept problems will all be solved ....then we could let the PLP back in power to so they could continue to party like drunkin sailors.
Economist 5 years, 11 months ago
Past governments have used the civil service as a jobs program to party faithful and their friends.
Just like Greece, the party is over.
The Civil Service is a large bureaucratic body which, by its 1950's performance is drowning our country in debt. there are many who do nothing and those are the ones that need to go.
DDK 5 years, 11 months ago
It's a scary looking building, isn't it?
bogart 5 years, 11 months ago
START SELLING OFF THOSE CONTINUOUSLY MONEY LOSING GOVT AGENCIES......SUCKING UP ALL SUBVENTIONS, GOVT ASSISTANCE....AND STOP THE TALK ON MORE VAT TAXING ON THE MAJOROTY OF THE POPULATION ....THE PORE....UNEMPLOYED.....CUPBOARDS BARE.HISTORIC 35-4 cries out for help, justice, fairplay, less pain.....not more taxes!!!
John 5 years, 11 months ago
It is Organizations like the IMF, The WTO, The World Bank that tell you to jump off the bridge, watch you jump and then tell you what is the only way to stop drowning (in debt) and how to get rescued. There are things the government can do, without making more drastic cuts to the civil services and sending more shockwaves through the economy. Fewer persons working means less economic activity and less government revenue. Government firings reduce consumer confidence and hence consumer spending and so business must then cut back. So the government must look at growing revenue. The tourist product needs polishing and needs more aggressive marketing. The food import bill can be cut dramatically by expanding Bamsi and helping private farmers get their produce to market and sold. This can be done by opening markets where food assistance recipients from Social Services are required to get a portion of their assistance if local produce and fish. And despite all the chatter, nothing yet has been done to reduce the enormous fuel import bill for BPL. There needs to be at least one energy efficient generator operating by years end and the implementation of renewable energy and solar power. And too much of the workforce is idle. Workers generate revenue. Unemployed people require government assistance.
TheMadHatter 5 years, 11 months ago
TalRussell - i cant believe im agreeing with you but yes YOU ARE CORRECT this new govt has yet to tell us where the VAT money has gone under their watch, not to mention as you say number house money.
I heard KP say about 2 months ago that it is in the consolidated fund. That is the same foolishness we heard from Halkitis. We want it segregated and assigned to certain categories like a special fund.
TheMadHatter 5 years, 11 months ago
Bogart - reduced duties at same time as increased VAT.
VAT is a MUCH more efficient and accountable tax. Duties are just "i ain't got nothin to declare".
Economist 5 years, 11 months ago
That is because the slack inefficient Civil Servants aren't doing their job. The private sector has to do the collection of tax and still pay for an incompetent civil service. Time to reduce the civil service by at least 10%
bogart 5 years, 11 months ago
...yep VAT is extremely efficient....majority of the citizens who it catches are the pore whose portion of small paycheck if any is greater than those wealthier citizens who is affected lesser degree as was the initiial arguement when implemented, but then we have more wealthier legislators than pore ones to stamd up .....what also wss a winfall was the busonesses who appears to have increases prices first to cover the administration costs and then added the 7.5% and then rounded figures to eliminate as much coins and ajusted. What we needed was the prpgressive income tax but many businesspersons would cheat not paying themselces full salary but taking it out in dividends not trapped by NIB.
TheMadHatter 5 years, 11 months ago
Bogart but you can see the increase in the number of little import businesses over the past 3 years. In cases where the price gouging is too much then people just use Amazon.
The Bahamian people need to get serious and fight against our invasion the same way Hungary is doing. They just re-elected President Orban in July and EVERY BAHAMIAN would do will to watch and read this AWESOME speech he recently gave in Pohland. Dr. Minnis would do well to emulate him.
Watch. It is worth your time. 13 minutes.
https://youtu.be/EbINrdyAXlE">https://youtu.be/EbINrdyAXlE
realitycheck242 5 years, 11 months ago
The Video shows that countries around the world are experiencing the same poblems . The immigration issues can certainly be applied to the Bahamas
Aegeaon 5 years, 11 months ago
What invasion? You mean putting foreigners behind the backburner who works to develop your country? There is NO invasion of the sorts, but rather an invasion in the later future by ISIS and Drug Cartel groups who see this place as a paradise for chaos.
TheMadHatter 5 years, 11 months ago
Sorry...not July....i meant April just a few weeks ago. Typo.
Bahama7 5 years, 11 months ago
Get that oil rig drilling.... last roll of the dice for us.
John 5 years, 11 months ago
The introduction of VAT may have saved the government (temporarily) but it stagnated the economy and killed many businesses. VAT was never intended to be collected along with customs duties. It was an alternative form of taxation and customs duties were supposed to be eliminated. And remember that government is now collecting taxes on services and this added to government’s revenue but also drove up the cost of living. And while government calculates the VAT on the total landed cost of goods (cost plus freight plus insurance plus other costs PLUS CUSTOMS DUTIES). The VAT collected in the first instance is much more than 7.5 %. But businesses were told they only need add 7.5% to their price after they add profit to calculate VAT they must now give to the government after deducting the VAT paid at the port, any businesses ended up short changing themselves i, especially if they were calculating their prices based on first costs. And also be reminded that government increased minimum wage by 40% at basically the same time The VAT was introduced. This also resulted in a corresponding i40% increase in National Insurance contributions for many workers and many businesses still cannot figure out why they cannot turn a profit since both the VAT was introduced and minimum wage was increased. These increases takes a ledge chunk of cash out of circulation every time businesses pay their VAT returns and NIB. And if businesses tried to increase prices to compensate for these costs increases their sales would have plunged. So many operated ‘in the negative ‘ and the result is what you are now seeing on Wulff Road, on Mackey Street on parts of East Street and Carmichael Road and even now in Marathon Mall . Since their cash flow is negative, it will eventually dry up and businesses will have to borrow more cash for working capital or close down. And then there are ever increasing costs to businesses by banks. Some banks have effectively raised their lending rate to over 12% by requiring cash collateral on overdrafts, on which they pay no interest and their add on monthly fees that must be added to their basic loan rate. Then some businesses have seen increases in their rent, utilities and general supplies and others had to hire accountants to keep their book in order for the Department of Internal Revenue (IRS) and so it will always be impossible for them to make a profit under current conditions. AND if THE Government does not make the necessary adjustments and get the economy moving, the NATIONAL DEBT can surpass $11 BILLION before the current government’s five year term in office ends.i
DDK 5 years, 11 months ago
Right you are John, you just neglected to mention the gross negative effect on the economy of the numbers slime houses.
TheMadHatter 5 years, 11 months ago
John....all if your points are correct. Regardless of those facts, the general response of Bahamians is quite predictable:
This is because "majority rule" even applies in Hell.
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